The leaders in the post-election run are finally taking a breather -- of sorts. DJ30 lost a bit of ground along with SP400 while RUTX showed a doji, holding basically flat. SOX and NASDAQ continued upside with SOX surging over 1%. SP500, after renewing the upside Tuesday after a 3 day lateral test, floundered on the day, showing a doji as it traded near flat.
SP500 -3.45, -0.16%
NASDAQ 18.96, 0.36%
DJ30 -54.92, -0.29%
SP400 -0.01%
RUTX Flat
SOX 1.14%
VOLUME: NYSE -19%, NASDAQ -5%. NYSE volume fell substantially as the rally leaders test; good action. NASDAQ volume was a bit light as it and SOX climbed, not the best action, but still above average. Volume cannot rise every session, and as long as an index or stock shows consistently stronger upside volume that shows the buyers are still there.
A/D: NYSE 1.1:1, NASDAQ 1.1:1. Again some very nondescript upside breadth, something lacking on the entire move. It makes some sense for Wednesday given the upside was rather narrow in chips and some technology.
Financial, industrial machinery and equipment, metals, airlines, retail and restaurants all paused or gave back a bit. Software, chips, and even old entertainment stocks such as DIS posted solid gains. FAANG wasn't grand, but AAPL sure put in a good looking bounce and NFLX has put in a solid 50 day EMA test.
Not a big surge day though chips were the leaders, thanks in large part to NVDA taking off upside once more. Basically, the market is showing what you want to see: a fairly orderly pause and test of the initial election surge (that was a pre-election and post-election surge, though for different reasons).
NEWS/ECONOMY
The economic data was not great though what is considered so-so by some is not bad to others.
PPI. Of course I am talking PPI that showed the overall at 0.0 (0.3% expected and prior) and -0.2 core (from 0.2% prior). The Fed and many want inflation as to those Phillips Curve worshipers inflation necessarily accompanies growth. Of course that is asinine. look at the Reagan years and boom showing massive growth and no inflation. The Kennedy years as well. So, not so great for the PC crowd, but I really like low inflation. Of course, it is not that low, now is it?
Industrial Production, October: 0.0 versus 0.2% expected and -0.2% September (from 0.1%). Once again production disappoints, now contracting year/year for 14 straight months. Maybe we are not in a recession, but this is the longest streak outside of a recession in almost 100 years. and the September revision to negative was a kick in the shorts.
Perhaps post-election there will be improving production with the improving optimism. I have already talked with several businesses who are going forward now with projects, right now, as a result of the election and the policies proposed. Growth and optimism are powerful. Regulation, taxation, artificially rates, a low dollar are not. Speaking of the dollar, it has surged post-election and is now at a 14 year high.
Capacity Utilization: 75.3% versus 75.5% expected versus 75.4% prior.
Sliding hard from the July high (75.7%) and June (75.6) as the bump higher has completely reversed. At least it is still above the 2015 low, but way off the early 2014 high. Lower high in 2014 below the 2006-2007 highs and rolling to a lower low. Not an indication of a nearing upsurge.
We did pick up some DIS and RHT. We like that the early rally leaders are testing, and stocks in financial, industrial, transports need some more time. That said, we see some possibilities already in stocks such as CAL, big biotechs, and NFLX and AAPL look very nice. Maybe the latter were not leaders in the rally, but they have sold back and are in great position. Could be they provide opportunity as the early leaders test.
There are a lot of naysayers. Bill Gross was out today saying Trump could cause severe damage to the US as the voters had let the "fox into the henhouse." Gross expects massive issues, but Gross is a pseudo-socialist, and let's face it, he made a living on the Fed manipulating rates, though there was a stretch there that he got his castanets cut off when he guessed wrong. Arrogant know it alls ultimately fall prey to their own self-delusions, one of them being a belief they can tell the future. Of course, they can't.
In any event, I love the naysayers. The more they stamp their feet, say the rally is built on nothing and thus must fail, the more pleased I am if the patterns are still good. For now they do indeed look quite good. Thus, we will continue to look for good setups, and as noted above, while the early leaders need more time, some are already there as well as others that didn't lead but have put in their time.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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